With the release of the draft mineral resource rent tax (MRRT) legislation in June, debate continues over the merits of the commodity tax and the effect it will have on Australia's booming mining industry. According to the Government, the reforms will boost national savings, cut company tax and provide investment in infrastructure, particularly in the mineral rich-states of Western Australia and Queensland. A further issue is the way small miners and junior explorers, who make up a significant portion of the mining industry, were left out of the MRRT's design process.
Replacing the resource super profit tax proposed by the former Rudd government last year, the MRRT was negotiated between Prime Minister Gillard and the three big mining companies, BHP, Rio Tinto and Xstrata, before a policy transition group (PTG) was chosen to finalise its design. Small miners were not included in those discussions - the Prime Minister herself explained earlier this year how the MRRT was shaped: "...there was the agreement struck between the three big miners, and we had the PTG with Don Argus [ex-BHP chairman] and we've accepted every recommendation". With such disregard for the inclusion of small miners throughout the process, it is no wonder they have little confidence in the MRRT as an equitable approach to tax reform.
"They have been sidelined right from the start," says Shadow Minister for Energy and Resources Ian Macfarlane. "They [the Federal government] have a consulting process that lacks involvement particularly of Australian-owned, small [mining] companies - this is particularly disappointing and grossly unfair." Simon Bennison, CEO of the Association of Mining and Exploration Companies (AMEC) agrees, stating that the big three mining companies had "no mandate to act on behalf of AMEC and its members".
Small miners are claiming that Treasurer Wayne Swan stacked the PTG with biased industry members who are or were employed by the big companies, to help the Government devise the tax scheme. "In the end people in those situations tend to represent their own companies, so it's hard to imagine that a company like BHP or Rio, for instance, or Xstrata would take up the issues in relation to smaller competitors," explains Macfarlane. "This is a competitive game - they compete against each other - even when markets are strong they are still competing for tonnage."
Reg Howard-Smith, chief executive for the Chamber of Minerals Energy of Western Australia, whose membership includes the big three miners as well as smaller ones, admits it wasn't involved in the negotiations, nor was it involved in the creation of the PTG. He says that the chamber "understands the concerns of some of our members who were excluded from this part of the process".
Fortescue Metals executive director Andrew Forrest, a very vocal proponent of the abolition or redesign of the MRRT, has not been so polite. "It's a precedent that should not be supported. Taxation policy should be broad-ranging, it should be fair and it should be based on the constitution of being equal among states and equal among companies. That hasn't happened. BHP has literally written a tax for everyone else to pay."
"Mr Forrest's assertion is incorrect," states Martin Ferguson, Minister for Resources and Energy, adding that PTG members were chosen for their expertise and experience across the industry. "The government afforded small miners and junior explorers the same opportunities for consultation as others in industry throughout the duration of the PTG process. I completely reject any suggestion that small miners were sidelined during the policy transition group consultation process."
According to the government's Future Tax website, the PTG undertook wide-ranging consultation with the mining industry and provided two reports to the government on December 21 last year - the first making 94 recommendations regarding the technical design of the MRRT and the extension of the petroleum resource rent tax and the second making four recommendations on mineral and petroleum exploration. With all 98 recommendations accepted by the Government, it would appear that the politicians are in fact listening to industry concerns.
"We've got the agreement of the industry for the MRRT, which will raise $7.4 billion to cut taxes for small business, to invest in infrastructure and cut the corporate [tax] rate among other things," says Treasurer Wayne Swan. "The reason they [mining companies] have made the agreement is they do understand there is a case for resource rent taxes."
Why then the negative discourse among small miners? "There are significant points of difference between emerging mining companies and the large multinational, multi-commodity conglomerates that ‘negotiated' the MRRT framework with the Gillard government," says Simon Bennison, CEO of AMEC)
"Suggestions by treasurer Wayne Swan that industry has agreed with the MRRT are incorrect, as agreement was only reached with three large [miners] and not the other mining companies that will be affected by this additional tax."
Ferguson disagrees. "The PTG considered over 80 written submissions from a variety of stakeholders and held detailed face-to-face consultations around the country, which were well-attended by industry, including small miners." Additionally, Ferguson claims that PTG members were not appointed to represent any particular sector within industry. "Collectively their previous experience extends across the entire industry, including small miners."
Macfarlane disagrees. "What we saw was a compromise worked out between the big three multinational miners and the Government," he says. The "losers", he says, are the Australian-owned, Australian-based companies. "They weren't involved in the initial compromise, they haven't been involved in the consulting group [PTG] that went on from there, and I suspect they won't be involved in the implementation group either."
However, Simon Bennison, who has been lobbying government to have the MRRT discussed at the tax summit this October, has no intention of being sidelined in future consultations - even accepting, along with several other bodies, an invitation to participate in a sub-committee that is attempting to work through some of the complexities of the MRRT. "AMEC is involved in that confidential process in an attempt to obtain some clarity and certainty for emerging miners and their investors - who are still not completely clear on the full extent of the tax on their business and investment profile," he says.
Although the Government has committed to continue its engagement with the mining industry throughout the legislative process, in particular adopting the PTG's recommendation to develop a resource tax implementation group, Bennison, as well as other industry representatives, has expressed his dissatisfaction with the Government's decision to exclude the MRRT from the tax summit later this year. "It is extremely disappointing that the summit has been deferred to October," says Bennison, who remains determined to see the MRRT put on the table. "AMEC will continue to liaise with its members, and take these concerns to Government through direct involvement in the proposed implementation group, and the legislative process. In the meantime, we insist that the MRRT is discussed at the October tax summit."
Macfarlane agrees, accusing the Government of trying to avoid close scrutiny of the MRRT. "I mean it is quite ridiculous to have a tax of this magnitude not included in the summit," declares Macfarlane. "I assume the reason for the tax summit is to review taxation. [The Government] appears to not want to explain to anyone exactly what it's doing."
Perhaps surprisingly, other industry representatives are not convinced it is a good idea either, with CME chief executive Reg Howard-Smith believing that the inclusion of the MRRT would be a backward step in the process. "Raising the resource rent tax at the summit would be a retrograde step, because it's very possible that proposals which would do even greater harm to our industry's international competitiveness would be flagged by some third parties."
"The big three mining companies had no mandate to act on behalf of the mining association and its members"
The Government says the MRRT is not being included in the tax summit because it doesn't want to delay the legislative process any further. "As the Treasurer has made clear, the timetable for this reform has been long established, and there have been months of public debate as well as an extensive consultation process with the industry and other stakeholders," says Ferguson. "We don't intend to put our whole economic reform program on hold until the tax forum."
In this light, small miners and junior explorers have little option but to abide by the Government's plan and take advantage of its promise to include them in future consultations. According to Ferguson, "the Government will undertake public consultation on the draft exposure legislation later this year and we encourage small miners and junior explorers to engage with this process".